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ROMANIAN GAS SECTOR OVERVIEW

ROMANIAN GAS SECTOR OVERVIEW. ABOUT NATIONAL REGULATORY AUTHORITY IN NATURAL GAS SECTOR - ANRGN. ANRGN was established in the year 2000 (on the basis of Government Ordinance no. 41/2000, approved by Law no. 791/2001), is: Romanian legal person

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ROMANIAN GAS SECTOR OVERVIEW

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  1. ROMANIAN GAS SECTOR OVERVIEW

  2. ABOUT NATIONAL REGULATORY AUTHORITY IN NATURAL GAS SECTOR - ANRGN • ANRGN was established in the year 2000 (on the basis of Government Ordinance no. 41/2000, approved by Law no. 791/2001), is: • Romanian legal person • public institution under coordination of Prime Minister • entirely financed from extra budget funds • certified according to ISO 9001:2000 standard by AFAQ ASCERT INTERNATIONAL • Mission • to elaborate, apply and monitor, at national level, the regulatory system necessary for developing activities in natural gas sector on the following terms: • safety and efficiency • competition and transparency • consumers and environment protection • Main prerogatives • to issue, suspend and withdraw authorizations and licenses • to issue the methodologies for regulated prices and tariffs and to approve the prices for captive end-users, as well as the tariffs for storage, transmission and distribution • to approve technical norms regarding construction and operation of facilities in natural gas sector • to issue commercial regulations regarding the internal market for natural gas, solving the disputes and preventing the abuse of dominant position 2

  3. NATURAL GAS - SHORT HISTORY • 1909 – discovery of the first natural gas fields in Romania, in Transylvanian Basin, at Sarmasel • 1914 – the first pipeline (length 50 km, diameter 10 inches) dedicated exclusively to natural gas transmission, linking Sarmasel and Turda. • 1915 – the first company for exploration, drilling, transmission and distribution of natural gas • 1947 – the first gas transmission pipeline (length 250 km) from Manesti to Bucharest • 1960 – discovery of some large gas fields in Transylvania which supply more than 60% from the total amount of national primary energy • 1974 – first transit of natural gas in Romania and in the Balkans • 1979 – first imports of natural gas from Soviet Union • 1979 – first modern underground storage of natural gas in Urziceni • 1986 – the maximum internal production of natural gas – 36.3 billion cubic meters • 1999 – Interconnection with the Ukrainean gas transmission system 3

  4. 100% 80% 60% 40% 20% 0% 1985 1990 1995 2000 42,4 41,0 40,0 37,0 NATURAL GAS 35,0 37,0 29,6 32,6 % CRUDE OIL 17,0 14,0 14,5 15,2 COAL 8,0 15,7 15,2 5,6 HYDRO+NUCLEAR THE SHARE OF NATURAL GAS (%) IN THE BALANCE OF ENERGY RESOURCES IN ROMANIA 4

  5. LICENSED OPERATORS- evolution from the year 2000 up to present - 5

  6. MARKET RELATIONSHIPS WHOLESALE MARKET RETAIL MARKET PRODUCERS (4) FOREIGN SUPPLIERS (2) DISTRIBUTION COMPANIES (24) CAPTIVE CONSUMERS WHOLESALE SUPPLIERS (43) ELIGIBLE CONSUMERS (102) 6

  7. NUMBER OF THE ELIGIBLE CONSUMMERS DEVELOPMENT OF NATURAL GAS INTERNAL MARKET OPENING DEGREE 2001 2002 2003 2004 2007 Total opening of the market 7

  8. NOTE: 25% from total internal consumption is rezidential consumption 8

  9. METHODOLOGY FOR APPROVING THE PRICES AND SETTING THE REGULATED TARIFFS • Pastmethodology for setting regulated prices and tariffs in natural gas sector was “cost-plus” type. • Final price resulted from adding transmission, storage and distribution tariffs, as well as the selling component to average weighed price for purchasing natural gas, using the formula: • P final = P average weighted purchasing price+ T transmission + T storage + T distribution + C commercial • In December 2003 new methodologies for setting regulated tariffs and prices were issued by ANRGN: “revenue cap” type for underground storage and for transmission activities and “price-cap” type for distribution and regulated supply • During 2004 and first quarter of 2005, ANRGN and the licensed operators implemented these new methodologies, so that in April 1th 2005 the new prices will became effective. REGULATED PRICES FOR END CAPTIVE CONSUMERS CONSUMMERS DIRECTLY CONNECTED TO NATIONAL TRANSMISSION SYSTEM – industrial consumers - Three prices for end users 137 USD/1,000 c.m . CONSUMMERS CONNECTED TO DISTRIBUTION SYSTEMS - residential consumers - - industrial consumers - 157 USD/1,000 c.m. 171 USD/1,000 c.m. * the used rate exchange is 30,400 ROL/USD 9

  10. DAILY/SEASONAL NATURAL GAS SALES IN ROMANIAFOR THE PERIOD OCTOBER 1, 1998 - MARCH 31, 2004 10

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  12. B.C.M. 5.0 CAPACITY OF UGS, B.C.M. 4.5 4.0 3.5 3.0 CAPACITY OF UGS 2.5 % PARTICIPATION IN ANNUAL GAS CONSUMPTION 2.0 1.5 1.0 PARTICIPATION IN ANNUAL CONSUMPTION 0.5 0 1999 2001 2003 2005 1998 2000 2002 2004 2006 2007 2008 2009 2010 DEVELOPMENT OF UNDEGROUND STORAGE CAPACITIESIN THE PERIOD 2000-2010 12

  13. FUTURE EVOLUTION OF ROMANIAN GAS MARKET • SNP PETROM S.A., one of the two great natural gas internal producers, was privatized in the first semester of 2004. OMV bought a 33.34% share package of PETROM and, in December 2004, its participation reached 51% as a result of increased equity. The market share of other producers, entirely private owned, holders of oil agreements, will increase to 3% (in the year 2007), respectively, up to 10% in the year 2015; • The same privatization method was used for the two major natural gas distribution companies. Thus, Gas de France has bought a 30% share package of S.C. DISTRIGAZ SUD S.A. Bucharest and Ruhrgas has bought a 30% share package of S.C. DISTRIGAZ NORD S.A. Targu Mures. The cumulated market share of these two distribution companies will decrease to about 90% up to the year 2007, in the same time with licensing of new private distribution operators; • The wellhead gas price will increase gradually, reaching import parity in the year 2007, the year Romania joins EU; • The diversification of import sources will be looked for, the alternatives at the main external sources (Russian Federation) being the European Union, Caspian Sea zone and Middle East. 13

  14. MAP OF NATIONAL TRANSMISSION SYSTEM OF ROMANIA 14

  15. NATURAL GAS TRANSIT ON THE ROMANIAN TERRITORY 15

  16. NABUCCO GAS PIPELINE PROJECT DESIGNED TO OPEN A NEW GAS TRANSMISSION CORRIDOR FROM CASPIAN / MIDDLE EST REGIONS VIA ROMANIA TO EUROPE P Initiators/partners:OMV(Austria),MOL(Hungary),TRANSGAZ(ROMANIA), BULGARGAZ(Bulgaria),BOTAS(Turkey). 15.07.2003:included in TEN (TRANS EUROPEAN NETWORK) Program of European Union. P P Total length:3,400 km, of which500 kmon Romanian territory. P Transit capacity:30 bcm/year; Estimated cost = 4.4 billion Euro. TRANSIT OF NATURAL GAS FROM CASPIAN AND MIDDLE EAST REGIONS TO EUROPE 16

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